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Gold’s upside capped by Fed rate hikes, for now

Gold is paring some of Thursday’s gains, as the resilient US dollar eats away at the precious metal’s ability to climb significantly higher.

Spot gold is now testing its immediate support level at the 200-day simple moving average.

The resurgent US dollar is weighing on gold prices, with the precious metal paring some of its gains in the immediate aftermath of the Fed’s latest policy signals.

Gold’s upside capped by Fed rate hikes, for now

The spectre of even more incoming US rate hikes, following the Fed’s jumbo-sized 75 basis point hike this week, should severely cap bullion’s near-term upside.

Markets will continue monitoring US economic data, to determine whether the Fed’s economic projections are just wishful thinking, with Fed Chair Jerome Powell’s testimonies before Congress in the coming week in particular focus.

Clearer signs that the Fed Chair will acquiesce to market expectations that a recession is inevitable could prompt more declines for the dollar, while weakening the cap on bullion gains.

However, if the odds of a US recession continue rising, as the Fed continues to hike interest rates in its quest to quell red-hot inflation, that could reinvigorate investor appetite for gold as a safe haven asset and eventually push bullion prices significantly higher.

 

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